Wall Street has operated by its own rules for so long, it's had a hard time hearing the outrage in the rest of America. But when the president of the United States weighs in, maybe finally the message will get through.

"This is a corporation that finds itself in financial distress due to recklessness and greed," he told a gathering of small business owners. "Under these circumstances, it's hard to understand how derivative traders at AIG warranted any bonuses, much less $165 million in extra pay. How do they justify this outrage to the taxpayers who are keeping this company afloat?"

Mr. Obama called on Treasury Secretary Timothy Geithner "to use that leverage and pursue every single legal avenue to block these bonuses and make the American taxpayers whole."

New York state’s attorney general, Andrew Cuomo, also threatened Monday to subpoena AIG for details of its bonus disbursements if AIG didn't provide them immediately.

AIG said the contracts, negotiated a year ago, were legally binding and that its hands were tied.

"I do not like these arrangements and find it distasteful and difficult to recommend to you that we must proceed with them," AIG CEO Edward Liddy wrote in a letter Saturday to Secretary Geithner. He also outlined ways in which the company was reducing this year's bonuses by at least 30 percent and stated that the salaries of its 25 highest-paid executives would be no more than $1 for the rest of the year.

Bonuses useful?

But, he added: "I would not be doing my job if I did not directly advise you of my grave concern about the long-term consequences of the actions we are taking today.... We cannot attract and retain the best and brightest talent to lead and staff the AIG businesses – which are now being operated principally on behalf of the American taxpayers – if employees believe thattheir compensation is subject to continued and arbitrary adjustment by the U.S. Treasury."

While noting that AIG's CEO had come on board long after the bonus contracts were signed, Obama shot back on Monday: "I think Mr. Liddy and certainly everybody involved needs to understand that this is not just a matter of dollars and cents. It's about our fundamental values. All across the country there are people who are working hard and meeting their responsibilities every single day – without the benefit of government bailouts or multimillion dollar bonuses... All they ask is that everyone from Main Street to Wall Street to Washington play by the same rules. And that is an ethic that we have to demand."

“We ought to explore everything that we can through the government to make sure that this money is not wasted,” said Sen. Richard Shelby (R) of Alabama. “A lot of these people should be fired, not awarded bonuses. This is horrible. It’s outrageous.”

If anything, the criticism is likely to give political momentum to the administration's efforts at wholesale financial regulatory reform.

"We already have resolution authority when it comes to a traditional bank, but when you start getting into AIGs ... we don't have all the regulatory power that we need," Obama said.